Exelixis, Inc. (EXEL) Earnings Call Transcript & Summary

I have RBC Global Healthcare Conference. My name is Greg Renza, one of the biotech analysts, and we're pleased to be joined by Exelixis today. And representing the company is Andrew Peters, the Head of Strategy, Senior Vice President. Andrew, always great to see you. Thanks for being here.

Thank you for the invite.

Certainly, a lot to talk about Exelixis reporting last week. I want to get into some of the recap there and also what's going on with cabo and zanza and, of course, the pipeline. But maybe, Andrew before we start, we can just have you provide us with a brief introduction to the company, the commercial and the pipeline.

Yes. Thank you again for the invite and glad to be here. A great day of meetings so far and looking forward to the afternoon. Just as a reminder, I will be making some forward-looking statements today so please see relevant risks and disclosures in our regulatory filings. So Exelixis, I think, is in a little bit of a great position, fun position to be in, in that we're really kind of smack in that transition of the cabo business really humming along, looking forward to a couple of pivotal zanza readouts later this year and then really investing in the pipeline. And so what we talked about on the last earnings call last week was really kind of a good summary of all of those dynamics, where really strong quarter from cabo and the base business in RCC, really kind of just executing full speed ahead, all cylinders in the net launch, and then looking ahead to first zanza and colorectal as well as non-clear cell RCC, executing on the other 4 pivotal studies that we've announced. And then really kind of from a pipeline perspective, identifying what that next big drug is going to be that we want to invest in. One of the things that I think unfortunately differentiates us from a lot of our peers is we always say that we run Exelixis like a business and not a biotech. And so what we mean by that is we want to be thoughtful about expense management, thoughtful about the programs that we invest in. Are they going to be differentiated? Are they going to have that through line that we think kind of runs through cabo and zanza in that they're successful or hopefully successful because they're generating differentiating data. Ultimately, our job as drug developers is to help patients and to establish new standards of care in really devastating diseases like kidney cancer. And so we believe that if we're able to right shift the survival curve, right shift the PFS curve, that's how we create value for patients and that's how we create value for our shareholders. And so we want to do that again and again and again. We've done it with cabo, we're going to have a couple of card flips this year for zanza. And then again, as I mentioned before, we want to understand and generate data quickly enough to identify what's that next program that raises its hand and says invest in me. Whether it's internal on our early-stage program or whether it's external from a business development perspective, we have the ability to execute. We have the financial capability certainly, and we have the right people, we have the right team to then say, okay, let's kind of run full speed ahead. And so great time to be at Exelixis, a lot of momentum. I think walking down the halls of the company right now, people are just really excited. And we come in every day doing exactly what I mentioned, trying to establish a new standard of care, and we want to make sure that we're doing everything we can to be successful in that mission.

Yes. With the history and with the momentum that you've garnered from not just 2024 but prior to that, maybe it's a disservice to start with this recent quarter. But as you mentioned, you've come off a strong quarter with the top line strength, some good nice EPS performance as well. And this, as you alluded to, is really driven by, I think, a core strength of cabo in RCC. Maybe walk us through what's working here. What's driving that growth to continue to accrue the market share?

Yes, certainly not a disservice to talk about cabo. I mean, it's what has defined us as a company and we have a saying, cabo is kind of the gas of the Exelixis engine. And so as cabo continues to be successful commercially, that's what fuels our ability to invest in zanza and our ability to invest in the pipeline, our ability to buy back shares. All of those dynamics are certainly driven by kind of the continued success that we've had in those tailwinds from cabo. So as P.J. and Mike and Chris talked about on the earnings call last week, really strong quarter. We were able to raise guidance on, frankly, the strength of that base business. Looking ahead then to kind of the continued launch in neuroendocrine tumors with that new indication. Depending on who you ask, it's either the data or the team, but it's really both. When I meet with P.J. and his team and it's one of the things that really jumps out is we think we have a best-in-class commercial organization, not even necessarily in biotech but in biopharma. What we've shown is the ability to continue to gain market share, continue to spread a message, spread the data set that resonates with patients and physicians and really make sure that we're maximizing that opportunity in RCC. Why is that? One, the data obviously helped. ASCO GU, we had a 5-year update from the CheckMate 9ER study, which, again, we believe continues to show that the combination of cabo and nivo has generated best-in-class data than I-O/TKI that offers a lot of favorable dynamics around that overall survival, continuing signal -- continuing to remain strong and things like quality of life and key secondary endpoints. Those are the sorts of things that have resonated and we continue to resonate. The other thing that we're doing and kind of we get this question a lot is, most drug launches tend to hit steady state between 5 and 7 quarters after approval, and we're now -- 9ER launched in 2021 so we're well past that. And it really comes back to the data and then the team. We have a team that is out there in the market seeing physicians, seeing customers every single day with a singular focus on how do we make sure, how do we maximize the patients who are getting cabozantinib as part of their journey in RCC. And so that kind of singular focus of the team, not letting up, not kind of moving to this thing and this thing and this thing in kind of that shiny new toy dynamic that I think happens a lot in the industry, this is something that we're particularly proud of. And when we reflect on kind of the success we've had with cabo, it's certainly about the data but it's certainly about the team as well. And so we're going to continue to kind of go full speed ahead and make sure that message continues to be out there.

Yes. Mike, you and the team talked about being in the business of p-values and building that data. That's sort of -- that's rooted in building that competitive moat. And we see the demand as a small molecule that folks want to understand the pricing dynamics. You think about the contributions of how you're navigating price and volume and maybe provide the reassurance or at least some degree of color on those contributions for this current quarter and as it sort of translates to that increase in...

Yes, certainly. So as P.J. has talked about in the last quarter and prior calls, the vast majority of kind of the success we've had is demand-based. If you look at the dynamics kind of post IRA, pricing tends not to be as much of a contributor historically just because we're kind of capped at the rate of inflation. And so it's, again, kind of a demand-based story. Certainly, it's everything that we just talked about kind of gaining 4 market share points on TRx. Four points of TRx growth is something that I think if you would have asked us 2, 3 years ago, we'd be pleasantly surprised, let's say, that we're still doing that. And so we want to do everything we can to make sure that kind of demand-based growth that really reflects patient and physician preference for cabo, we want to just continue that.

Yes. Great, great. And then let's segue into neuroendocrine tumors then with the indication expansion. As you mentioned, you're full steam on the launch. The horizon of the guide increase does not include that from our understanding as far as that opportunity so maybe it's upside potential. Maybe just starting with the CABINET results, how that -- how the results have suggested the competitive potential for cabo in second-line plus.

Yes. So P.J., on our earnings call has a really nice slide, kind of a checkbox slide that I like to refer to when I think about the opportunity set for cabo and NET. And it really shows that with such a heterogeneous disease and kind of the pNET, the epNET, cabo has a label and a NCCN guideline recommendation that's relatively broad. And because of that, we have an opportunity to again be a standard of care for these patients as part of their journey with neuroendocrine tumors. And so the breadth of that indication, the breadth of that opportunity set, we think, aligns well kind of with the commercial opportunity. If you look at some of the oral options that are available to patients, they have probably more of a limited utilization, whether it's pNET, epNET or some of the other dynamics there. But I think the other thing to keep in mind is voice share. With both SUTENT and everolimus and CAPTEM all being generic, we're really going to be kind of the dominant player from a physician education from a just market dynamic perspective. And so I think that's going to be, again, an opportunity for us to really go out and provide that compelling message to customers, to physicians, to patients about the CABINET data, the breadth of the activity, the overall clinical benefit, the fact that candidly, any time you see a PFS HR with a 2 and 4 in front of it across those 2 sets, that's a good thing for patients. And so that voice share is something that I think is going to be increasingly important as we think about the launch. But again, it's about the data and the CABINET data was a particularly strong data set. And it's one that as we kind of go out to the market and ahead of the launch, we did a lot of market share, it was a data set that frankly really resonated. We've talked in the past about a lot of the dynamics ahead of the launch around physician familiarity with cabo. So unlike a lot of drug launches, about 80% -- 75% to 80% of prescribers already write cabo -- NET prescribers already write cabo for another indication. So you have that inherent familiarity with cabo. And you don't have that kind of learning curve, so to speak, of how to manage toxicities, how to think about different doses, the 40 versus the 60, all of those things that can sometimes slow a launch or just inherent part of any new product launch. That's built into the opportunity that we have with NET and why it's been such an all-hands-on-deck exercise for us. And so when P.J. talked about on the last earnings calls that we've seen something like 70% of the prescribers already, it's because our field force has already been out in front of those customers and have that -- those relationships built in. And then the other, say, 20% who haven't written cabo previously, the vast, vast majority of those are actually co-located in sites that our reps were already seeing. And so just walking down the hallway and seeing a new physician and here's something new to talk about, and oh by the way, making sure that you saw that 5-year update in RCC. And so when we go out to talk about NET, we also see that as an opportunity to reinforce and emphasize kind of our messaging in kidney cancer.

Great. So we've got the data. We've got the familiarity. How do those components translate into the revenues? Maybe remind us of the base assumptions on cabo's opportunity -- revenue opportunity in that? And also just getting a better sense of that contribution, it sounds like the briskness with which the familiarity can actually -- and the execution can translate to utility, walk us through that contribution for '25 and the following years of that peak opportunity?

Yes. So we're -- what we said on the last call is one, we don't give guidance on guidance. But we want to make sure that we understand kind of the trajectory and slope with that launch curve before we give kind of a formal update about how it's going, so kind of stay tuned there. But I think what we've talked about in the past is that kind of later-line neuroendocrine tumor opportunity set, if you look at the utilization of the oral options right now using contemporaneous pricing, it's about a $1 billion market. And so kind of the key question for us and for our stakeholders is how much of that kind of $1 billion can we take. On the third quarter call last year, after we had gotten kind of all of the ANDA dynamics behind us, we used this as an opportunity to kind of level set how we see the business. We talked about cabo and we talked about zanza. On the cabo side, we said that we expect it to grow by 2030 to a roughly $3 billion franchise. Certainly, a key part of that is continued momentum in the base business, but obviously launching a new indication like neuroendocrine tumors is going to be a key contributor of that as well. So that's kind of how we see the business evolving and it's just about execution at this point for kind of that cabo piece, and then I'm sure we'll get to zanza later.

Let's do it because on that call, you also spoke about the clinical strategy in zanza's development. I think the aspiration was maybe $5 billion in projected peak for zanza. So maybe this is a good time for us to ask you to highlight zanza's differentiation from cabo and other TKIs and just the strategy that's supporting that confidence of that 2030's $5 billion number?

Yes. So kind of the key insight or kind of the genesis of zanza, and I always get a kick out of this and all of the naming dynamics. So cabo's XL184 originally. Zanza's XL092 and half of XL184. It really kind of plays into what we were focused on. So cabo, as successful as it's been in as many patients as it's helped, and as a quick aside, I was in a meeting earlier this week or last week. And I've really heard a stat that jumped out to me that our supply chain team had talked about that, I think, 100 million cabo tablets have been given to patients or we've made 100 million tablets. And it just kind of jumped out at me of just how important of a product cabo has been from a patient perspective and helping people live longer, better lives with cancer. But cabo's kind of one Achilles' heel, so to speak, is that it has a relatively long half life of around 100 hours. And so the way that, that translates to clinical management for patients is any patient who's on a VEGF-targeting TKI or any TKI candidly ultimately sees adverse events. And what you need to do is dose hold, dose reduce until resolution symptoms. But because of that long half-life, it can be somewhat challenging from a practical clinical management of patients, especially when you're giving it in combination with other things. So that dose hold period can -- with that 4-day half-life and accumulation of plasma can be 10 days, 2 weeks, even longer. And so you can imagine that patients with active late-stage metastatic cancer, that can be challenging. So zanzalintinib was designed really to improve upon that half-life profile. So we were able to engineer a metabolic liability into that core cabo scaffold in kind of the nonactive portion of that TKI to take the half-life down from around 100 hours to a little under a day, 23 hours, and so while phenocopying the kinase inhibition profile and all the kind of the efficacy that we think really drives the cabo success. And so it's really the insight there was we thought we were pretty dialed in from an efficacy perspective. But from a user friendliness, from a combinability and from hopefully and potentially a tolerability perspective can that shorter half-life translate. And so that was kind of the core genesis of the zanza program. And all the data to date that we've shared, whether it's the dose escalation or all of the emerging data sets has really shown that we've been successful from that perspective. And so really kind of when we talk about differences between cabo and zanza primarily around the half-life, unsurprisingly, when you change half-life, we have seen differences in things like tissue distribution into the tumor versus healthy normal tissue. And is that potentially a driver for some of the early tolerability differences that we've seen? Maybe. We'll see in kind of the full data, pivotal data when it's out. That's kind of when the cosmic truth for these things tends to show its head. But that was kind of the genesis of it. When we thought about where we wanted to develop zanza, what we recognized was that we had seen activity for cabo, either as a monotherapy or in combination in something like 20, 21 different tumor types. But given our either financial constraints or operational constraints, they've chosen not to develop cabo there, which is why we saw an opportunity then with zanza to move into what we think are areas of high unmet need like third-line plus colorectal cancer or frontline head and neck, that had prior cabo data sets that pointed us in the direction of can a cabo-like molecule with a shorter half-life have the potential to be a new standard of care. And so if you look at the 6 ongoing or planned pivotal studies that we've had, 303, third-line colorectal cancer; 304, non-clear cell RCC; 305, frontline head and neck; 2 studies with Merck in combination with belzutifan; and then an earlier study in neuroendocrine tumors compared against everolimus. Those are all areas that actually aren't necessarily overlapping with cabo. And so we get this question a lot about, oh, how does cabo versus zanza differentiate? If you look at kind of that $5 billion market set, there's really not a whole lot of overlap between the 2. And so it's a strategy kind of by design and partly by luck that as we look ahead to kind of the cabo LOE in January 2031, we think that with zanza, we have the opportunity to kind of grow through that.

That's a great summary, Andrew. And when it comes to upcoming 002 stellar data, it looks like ASCO presentations, maybe just talk about the derisking philosophy. And when we think about benchmarks to derisk zanza's development in clear cell, how maybe that can be parlayed or leveraged when you think about design for the zanza belzutifan study that you mentioned in collaboration with Merck? So as you've laid this out, how do we think about the sequencing of derisking and data informing next steps?

Yes. I mean, certainly excited to share the ASCO data. What you clearly see is it's a very active drug. From a derisking perspective, I'll come back to, you quoted Mike earlier saying we're in the business of P-values. And so ultimately, when we think about zanza not only in CRC or really zanza's a franchise molecule that we want to invest in, those derisking events candidly are the pivotal trials. And so ASCO is certainly going to be important for us this year, but we do have 2 pivotal readouts: first in colorectal cancer event-based, while we see and also with 304 in non-clear cell RCC. And so we're going to get two Phase III randomized readouts from that program this year. And I think that's ultimately going to be the key derisking event for how we think about that franchise. So what we want to do is we have the 6 studies ongoing right now. And we want to define that next wave of zanza studies to say, okay, what are the opportunity sets that we think we have the ability to, either in monotherapy or in combination, define new standards of care with what we think is a differentiated and clearly or hopefully best-in-class TKI user-friendly, combinable, all of that stuff? And so what we'll see with those pivotal readouts this year is kind of that first derisking of how we think about the next wave and the next wave and the next wave. And on that point, what we have talked about is either looking at the Merck collaboration as an example, or prior versions of that, either with the CONTACT trials or CheckMate with Bristol, we like that model of having clinical collaborators where we can risk share, where we can cost share and so we can be capital efficient as we think about R&D. And so coming back to 9ER, we always joke that's in the ROI hall of fame. We were doing around $750 million a year when that study read out. We've obviously been able to grow it from there. But the key point is that Bristol paid half and Ipsen and Takeda paid half of our half. And so that capital efficient investment, we want to continue with zanza and hopefully kind of with the pipeline going forward.

Yes. And of course, always the #1 question, I wanted to spare you but it's in the wheelhouse for you so I just have to close with taking the value that's created with cabo investing and in zanza but also the pipeline, and frankly, external innovation. So just, Andrew, a word on capital allocation. I know you've got the pitch of how you position that. But maybe one specific question is what comes around to EXEL, Exelixis' approach to differentiation. How can Exelixis and you outcompete other strategics? We know that you want high conviction assets. So do others. So what makes Exelixis' search and eval different such that you can convert on those goals?

I think we have slightly different goals. I often -- there's a difference between, say, a numbers game and a quality game. And we want to make sure we have a quality game with a differentiated perspective. And one of the things we've talked about is we got cabo back twice. So our larger pharma, biopharma peers don't necessarily have a perfect crystal ball, but we think we have the ability to have a differentiated lens on, say, what a market opportunity is or what a biological hypothesis around a particular mechanism is. And so we want to make sure that we're investing in the right things, asking the right questions, running the right studies because we don't want to bring in just another me-too because commercially, those tend not to be successful. We more want the next cabo versus the next ninth of whatever.

We'll leave it there. Andrew, thank you for joining. Thanks, everyone, for joining. Look forward to ASCO.

Yes. Thanks again. All right.